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Executives survey the prospects for China’s future prosperity

Updated: Mar 16,2016 9:22 AM     China Daily

The 13th Five-Year Plan (2016-20) is about to come into effect. As the nation waves goodbye to double-digit growth and tries to accommodate the new normal, overseas businesses also have to adjust to a slower China. To gauge business opinion, China Daily invited executives from several multinational companies operating in China to share their views on the outlook for the Chinese economy.

Q1

China has set a GDP growth target of 6.5 to 7 percent for this year. It’s the first time that a range rather than a specific rate has been set as a target. What do you make of this change, and what is your understanding of such a flexible target?

Q2

In your view, what are the major opportunities and challenges for the Chinese economy in 2016?

Q3

In the context of supply-side reforms that are currently being emphasized, do you see any opportunities for your business in the 13th Five-Year Plan?

Q4

China has raised this year’s fiscal deficit target to 3 percent of GDP in a bid to bolster government spending and ease the corporate tax burden. How do you think this move will help businesses?

Gaby-Luise Wuest, President, Dongfeng Infiniti Motor and managing director of Infiniti China

A1 The move is in line with the Chinese government’s efforts to adjust the economic structure to achieve better-quality growth. The target of a single year is important, and at the same time, we are confident about the mid- and long-term prospects of the Chinese economy.

We at Infiniti are also aiming for long-term, sustainable, quality growth in China, our second-largest, fastest-growing market. We are the only premium car maker with headquarters in Hong Kong, and we started local production in Xiangyang, Hubei province, more than a year ago to get closer to local customers.

A2 Reform is often accompanied by challenges and pains. Economic restructuring is obviously tough for some traditional industries. For example, these days there’s a lot of discussion about the scenario of reemploying a couple of million workers who may need to be channeled out of steel plants. Meanwhile, the government’s constant efforts to foster new, innovative business seem to be paying off. Last year, the service sector’s share of GDP exceeded 50 percent for the first time.

A3 In the context of the supply-side reforms, China’s domestic demand will continue to expand in the next five years. From an auto-industry perspective, we believe that growth in the premium car market will gain momentum this year, and sales of premium cars will probably rise by 10 percent to more than 2 million vehicles. Opportunities also lie in new-energy vehicles and second-hand vehicles, which were mentioned in the Government Work Report.

Also, supply-side reform requires companies to focus more on innovation, and therefore provides opportunities for innovative manufacturers. As a young, premium auto brand, Infiniti is dedicated to innovation in areas such as safety technologies, hybrid power trains and autonomous driving to offer customers the best products.

A4 The expansion of the fiscal deficit is crucial to ensuring the economy stays on a relatively fast track and for companies to run business in a generally positive and healthy environment.

Reduction of taxation is a more direct incentive to companies, which means lower financial burdens and a chance to offer more-competitive prices. While costs are down, people also tend to find it easier to start new businesses and employ people. Normally, tax reductions generate a very positive chain reaction for the economy and society.

Zhang Ying, Dassault Systemes Managing Director for Greater China

A1 Economic structural adjustment is essential. Those who don’t adapt to it will not have a bright future. Dassault Systemes has always paid attention to China’s economic transformation and upgrading. Be it the business or consumer market, advanced technology and new tools are necessary to improve the efficiency and quality of products. We think highly of China’s economy, and have confidence in the forthcoming 13th Five-Year Plan. This year is the start of China’s new five-year plan. I believe the Chinese government will continue efforts to reform, boost transformation and upgrades, and promote economic development.

A2 The Chinese government encourages people to do business creatively and drive innovation, from which we find that Chinese talents possess the ability to innovate. This is a valuable asset for China’s economic development. We think the country is breeding more creative opportunities, and needs more world-leading technologies.

A3 As far as I’m concerned, supply-side structural reform will leverage all effective ways to renovate the business process, ranging from research and development to sales and marketing. The Integration of Information Technology and Industrialization and Internet Plus are two reforms the government has focused on.

Specifically speaking, supply-side structural reform means innovation driven by new technology (for example big data, cloud computing, the Internet of Things and 3-D printing) and new thinking. The goal is to meet domestic demand, and stimulate economic transformation and growth.

A4 The coming five years will be a crucial time as China carries on development at a new level. An increasing number of Chinese companies will be going overseas for more opportunities, and the country’s consumer market will become more mature. In addition, the awareness of intellectual property will benefit Dassault Systemes and all the other software companies, so they can grow together with China.

Stephen Maher, President, Mondelez China

A1 I think the growth range sends a positive signal to business. It means China will balance the need to stimulate the economy, while implementing wide-ranging economic reforms. A range target provides this flexibility and a high degree of predictability. We need to remember that China is as large as a continent and is the world’s second-largest economy. This continued and yet flexible focus on growth will unlock vast opportunities throughout different regions at the city level for businesses such as Mondelez.

A2 The western region and the hinterland provinces represent real opportunities for us. We can modify our proven models from our previous expansion in the coastal cities over the past 20 years. While the government is encouraging urbanization and job creation in the hinterland region, we will experience a lot of synergy. The Chinese government knows very well how to unlock the potential and deliver urbanization, manufacturing and infrastructure jobs.

A3 Internal consumption is increasingly becoming a key driver of the Chinese economy. Companies on the supply side need to innovate and transform to provide products that meet the changing need of Chinese consumers. This is not unlike the situation in large economies such as the United States, Europe and Australia. For our company, innovation, premiumization, distribution and accessibility of our snacks to the consumers are more important than ever before. It is an exciting time for us, as we are meeting a true challenge of transforming our business model to meet the new consumption-led model of China and the accelerating growth of e-commerce.

A4 We welcome the government policy of easing taxes, as it will be a very positive signal of support to the business community and encouragement to further invest in China. Mondelez has been operating in China for more than 30 years. We have consistently received government support and encouragement for our business. We will continue to focus on the fundamentals of the marketplace, and transform and evolve with the Chinese economy. Our mission is to manufacture high-quality and safe snacks and bring delicious moments of joy to consumers. The direction and leadership the Chinese government is providing to manufacturers will help drive further consumption growth at all city levels.

Edward Yang, President, BP China

A1 This year’s flexible GDP target reflects the Chinese government’s clear understanding and in-depth analysis of both the current sluggish recovery of the global economy and China’s economic development under the new normal. To understand the balance between China’s stable growth and economic restructuring and the response to domestic and international factors that will impact this path will require policy choices and adjustments to management. A ranged GDP target allows for the policy flexibility required in managing the economy, while at the same time providing the markets with guidance of expectations in how the economy will run and reduce uncertainty.

A2 Given its size, rapidly growing economy and influence on the global stage, China is a country of great significance to BP. It continues to be one of the world’s largest and most dynamic energy markets, driven by its sheer scale of industrialization, urbanization, motorization, as well as the internationalization of its products and services. BP’s focus on delivering advantaged manufacturing is in line with China’s agenda to transform into a manufacturer of advanced and quality products. In addition, BP contributes to the efforts that China has made to reduce its carbon footprint by working in areas including natural gas supplies, advanced fuels and lubricants. BP is also continuing to improve the efficiency of our own energy facilities and equipment operating in China.

A3 Supply-side reform is becoming a new economic focus for China, which calls for strengthening the supply structure and improving the quality of the supply system at the same time. Taking BP’s Zhuhai PTA 3 Plant (with design production capacity of 1.25 million tons per year) as an example, it is the first site to use BP’s most recent version of its PTA technology. Compared with conventional technology, it is highly energy-efficient and produces 95 percent less solid waste, 65 percent fewer greenhouse gas emissions and 75 percent less water discharge, realizing benefits for both the community and BP’s business. This plant is the best showcase for high-end supply via innovations that will enhance the sustainable development of the whole industry.

A4 This moderate increase in the government deficit mainly aims to cover tax and fee reductions for enterprises, which will, to a certain extent, reduce the financial burden on enterprises and make investments for growing value.

Steven Clay Schiller, President, China/Asia, The Hershey Company

A1 We support the government’s pursuit of a balanced, sustainable economic future. A range for growth reflects the complexity of the economy’s migration to the new normal. Change of this magnitude makes predictability difficult. Projecting a growth range appears to indicate that the transformation will be smartly managed through flexible policies and decision-making.

A2 Hershey is optimistic about the future and growth potential in China. There are many positive trends that broadly favor business, such as urbanization and growth of disposable income. That said Chinese consumers are currently more cautious in their spending amidst the recent economic slowdown. This will probably continue until there is more stability. From the business perspective, it may take some time, but consumer confidence will return, and a consumption-led economy will develop. At Hershey, we are focused on capturing growth today and, importantly, we are building capabilities to capture the new growth that will emerge.

A3 The 13th Five-Year Plan makes food safety a national priority. This will be very important to increase the supply of quality food and reinforce sustainable consumption growth. Hershey has prided itself on providing high-quality products for more than 130 years. We have already, and will continue to, partnered with the various food safety and food standards authorities to help promote the regulations and infrastructure to support food safety efforts.

A4 Being active in China for many years, Hershey has seen the country take many positive steps towards establishing an environment that is attractive and supportive to international business. The stimulus that the increased fiscal deficit creates should support growth in the consumption-led economy. The easing of the tax burden can also support business investment in areas such as technology and innovation, which should also contribute to growth.

Anne Marion-Bouchacourt, Chairwoman of Societe Generale China

A1 It shows the leadership’s continued commitment to the ever-more challenging economic rebalancing. The relaxation of the growth target sets the tone: The government is not giving up on growth, but it is not just pursuing growth. Instead, achieving a sustainable and healthy growth is the way to go, and the government is willing to give room for some flexibility.

A2 We are embracing the new normal, where China is carrying out structural reform for long-term sustainable growth. Amid the slowing economy is the reform of the corporate sector, and some industries may see an impact as the government is set to tackle the problem of overcapacity. Credit risks and default risks can be an issue. A slowing/moderate growth is expected this year.

On the bright side, the short-term pain will bring a more balanced structure to the Chinese economy in the long run. China is an economic powerhouse in the world, and we have to put things into perspective. Despite the so-called slowdown, the absolute growth in 2015 (which was $450 billion) was bigger than any economy that is not top 30 in size. With its continuous reform and market opening, we believe it will be a key player in the global economy.

A3 We are expecting more cross-border mergers and acquisitions, overseas debt issuance, development and investment projects abroad, both in Europe and along the Silk Roads. As an international bank, we are well positioned to assist Chinese corporates in their overseas developments.

Also, with the developments of the capital markets and the renminbi becoming a reserve currency, there will be a lot of opportunities for long-term investors. We can assist them to get the right return by leveraging our strong expertise in structured products and investment solutions, sectors like green energy or bio-technology.

A4 Definitely-it is a positive move to bolster the economy by giving corporates more room to develop with the easing tax burden. Tax reductions and fee cuts are estimated to be 500 billion yuan ($77 billion), and the corporate sector is set to benefit from the bulk of it.

A multiplier of tax deductions for research and development expenses will be applied, and also preferential tax treatments to startup funds. The move encourages innovation in the corporate sector, which echoes the Made in China 2025 initiative-the first 10-year national plan to transform China from a manufacturing giant into a global manufacturing power with a focus on innovation and quality of production, as we see in sectors like green energy and bio-technology, etc.

Celina Chew, President, Bayer Group Greater China

A1 It is the first time that China has set a range for its GDP growth target, rather than a specific rate. This range is in line with the medium-to-high growth direction that the Chinese government has previously indicated for China in the new normal. I understand that the setting of a flexible target reflects the government’s greater focus on the quality and consequences of growth rather than the growth figure itself. The task of building a moderately prosperous society across many areas, the need for structural reforms, the encouragement of different growth drivers and the rebalancing of the Chinese economy will be challenging.

A2 This year, China embarks on its 13th Five-Year Plan, which is characterized by medium-to-high growth and a shift from a focus on investment and exports to encouragement of domestic consumption and new drivers of growth, such as mass entrepreneurship and innovation. Key government initiatives that will continue this year, such as Modernizing Agriculture, Healthy China, Made in China 2015 and Internet Plus, as well as a focus on supply-side structural reform, overcapacity, digitalization and innovation, present excellent opportunities for Bayer to enhance its business operations in China.

A3 We believe that the supply-side reforms emphasized in the 13th Five-Year Plan are very important and, together with the stimulation of consumption and economic growth, will help enable the sustainable growth of China’s economy. The 13th Five-Year Plan holds many opportunities for Bayer’s business, and its key themes of innovation, openness, collaboration, green issues and inclusiveness are very much consistent with Bayer’s philosophy, corporate culture and mission.

In the next five years, the Chinese government will continue its efforts to step up reform in healthcare, in particular, in the fields of medical information technology and biopharmaceutical research and development. Agriculture modernization is an important feature of the 13th Five-Year Plan, and China’s push for supply-side reforms in agriculture will help speed up this modernization process.

In the Government Work Report, Premier Li Keqiang said innovation is the primary driving force for development, and must occupy a central place in China’s development strategy. Bayer looks forward to contributing significantly to the implementation of the plan in China.

A4 The raising of China’s fiscal deficit target for this year to 3 percent of GDP, and the easing of the tax burden on companies should help businesses by lowering business costs and enabling more structural reforms, as well as stimulating consumption and public spending. This should encourage more economic growth and development in China in a sustainable way.

Steffan Huber, Senior Covestro Representative, Greater China

A1 China’s Government has set the goal of achieving “a moderately prosperous society” by 2020, based on 2010 GDP. To achieve this within an increasingly consolidating economy, China will need to grow annually by 6.5 percent on average. The range points to the fact that China’s government is realistic about the challenge of balancing several key tasks: Implementing the necessary structural reforms to create a more sustainable and innovative economy, while at the same time reassuring the Chinese people that raising overall living standards remains a priority, and China will continue to be a global economic engine.

A2 Stimulating stronger domestic consumption in China is a national priority. Meeting domestic demand provides numerous opportunities for growth. At the same time, products made in China will need to be of higher quality and be more innovative. Innovation and the call for more sustainable growth that requires more environmentally friendly manufacturing, will spur, for example, new technologies. Similar challenges in Europe in the 1980s triggered the development of a completely new industry revolving around cleaner technologies.

Meanwhile, overcapacities continue to put pressure on product prices. China’s government is addressing the topic twofold: With regulations to stimulate more competitiveness of products and manufacturers, and with long-term campaigns to develop new markets and product outlets, such as the Belt and Road Initiative. If related regulations are unanimously enforced across all players, it will improve the long-term competitiveness of industries.

A3 Supply-side reform aims to improve quality and cost-efficiency in businesses. This is not new to Covestro. To stay globally competitive, we constantly work to improve efficiency and productivity across company operations. We embrace sustainability and innovation because new technologies, for example, in production, help to bring down energy consumption. The drive for sustainable urbanization through energy-efficiency programs in buildings and transportation calls for materials that effectively insulate houses or make vehicles lighter.

A4 Apart from efforts to stimulate spending to counter the economic downturn, the moderate increase is projected to cover tax and fee reductions that will further relieve burdens on businesses in certain sectors. After the formal implementation of the business-to-VAT reform, we foresee that the tax burden on our company will be further reduced. Besides, companies with a lower tax burden have more purchasing power to expand businesses by investing in sustainable projects and innovative technologies. Meanwhile, enabling the government to spend more money due to a more proactive fiscal deficit target will mean more infrastructure projects and offer new opportunities for companies.

Doug Gurr, President, Amazon China

A1 China has the largest middle-class population in the world, which has massive consumption power and strong demand for high-quality products. With such a huge market and unmatched consumption power, which I believe will be further stimulated by supply-side structural reform, I am optimistic about China’s economy. The GDP growth range set by the government is still an amazing rate.

A2 Cross-border e-commerce is booming globally, but especially in China, and represents the most dynamic driving force of China’s e-commerce development. It will maintain its booming momentum in 2016. Meanwhile, among the heated discussions in this year’s two sessions, the reform of the supply side has become a core subject. My observation is that supply-side structural reform will also inject new power and energy into China’s economy, stimulate the consumption engine and boost sustainable development.

A3 China’s huge middle class has strong demand for high-quality products. We launched Amazon Global Store in 2014, which provided Chinese customers with millions of high-quality international selections. Our data indicate that Chinese customers have shown tremendous enthusiasm. During the 2016 Spring Festival, the number of orders Chinese customers placed on Amazon Global Store was eight times that in 2015.

With such a huge market and unmatched consumer power, which I believe will be further stimulated by supply-side reform, I am optimistic about China’s economy. Tasked with providing Chinese customers with authentic, high-quality products and convenient experience, Amazon China will continue to play a positive role in response to China’s supply-side reform, and carry on our cross-border e-commerce strategy.

Meanwhile, we help bring international brands to the Chinese market, which in turn cultivates the purchasing behavior of Chinese customers and stimulates their demand for high-quality and authentic international products. This forms mature and healthy consumption patterns and drives domestic demand, which benefits the development of China’s economy.

International brands also provide references for Chinese brands, which are learning how to build up their own brands and expand overseas. Those Chinese brands have won recognition from overseas customers and created tremendous value for the Chinese economy, prompting the building of global brands, which will further elevate the reputation of Chinese brands in the transition from “Made in China” to “Brand from China”.

A4 We are encouraged by the government’s measures.

Faruk Arig, President, Henkel Greater China

A1 Being active in the Chinese market for almost 30 years, Henkel is deeply rooted here, both in industrial development and in consumer business. We have witnessed the country’s fast and prosperous development over this period, as well as its peaks and troughs over the last year. From our perspective, the flexibility of the GDP target shows China’s shift of focus from quantity to quality in pursuit of economic growth. The world’s No 2 economy is seeking to balance deep structural reforms and attempting a transition from dependence on exports and investment to consumer-led growth. It is regarded as slower, but assuredly more sustainable, in the long haul.

A2 Implementing innovation-driven development will be both a major challenge and a unique opportunity for the Chinese economy in 2016. We are encouraged to see that China is working hard in addressing the decline in industrial growth. It took initiatives to upgrade industrial development, such as launching Made in China 2025, while fostering new innovation-oriented industries such as 3-D-printing and LED/OLED lighting through government funds and policies favoring innovative small and medium enterprises.

Manufacturing upgrades and the development of next-generation technologies are areas where Henkel is ready to provide full support with our tailor-made solutions. As we also operate a consumer business through our beauty care brands, we see positive opportunities in China’s Internet Plus strategy and the booming e-commerce market.

A3 The pendulum swinging to the supply side shows that China has resolved to achieve quality and sustainable growth, shifting its focus from productivity expansion to productivity enhancement. As mentioned by Premier Li Keqiang in the Government Work Report: We need to give particular emphasis to structural reform on the supply side, reducing supply in some areas while increasing it in others.

As we see it, it is not simply the cutting of excess capacity, but utilizing it through innovation and technological advancement that presents Henkel with unique opportunities. Through our customized total solutions, we help Chinese customers to achieve higher efficiency and sustainability with lower total costs and fewer manufacturing processes.

A4 By reducing the tax burden on all industries, consolidating government-managed funds and expanding exemptions from 18 administrative charges to include all enterprises and individuals, we view it as a big move by China to encourage enterprises to foster innovation and to boost public consumption. The reduced burden on companies and consolidated government funds will help local research and development initiatives to operate in line with the country’s innovation-driven development policies.

Huang Chenhong, President, Dell Greater China

A1 This goes to show that the government is very serious and determined about sustaining growth at a considerable rate in the age of the new normal. It gives a comfortable feeling to all involved. Dell will continue to contribute to China’s economic growth with our investment and business in this country.

A2 We are pretty bullish on China’s economy and market environment in 2016. We believe that the government’s 13th Five-Year Plan, the Belt and Road Initiative and the Internet Plus national strategies will bring new opportunities to the IT industry and boost Dell’s growth in China.

The year 2016 also marks the 21st anniversary of Dell’s entry into the Chinese market. It will be a crucial year for Dell to execute its 4.0 In China for China strategy, announced last September by CEO Michael Dell. Key initiatives of this strategy include further contributing to China’s economic development through more investment, integrating into the local ecosystem and establishing strategic partnerships with local partners.

The 13th Five-Year Plan, the national strategies mentioned above and the mega-trend of digitization, bring a lot of opportunities to companies like Dell. Dell is very well-positioned in China to take advantage of these opportunities and further contribute to China’s economic growth. With our future-ready IT solutions, we will help Chinese customers grow and thrive.

A3 Supply-side reform, which encourages tax cuts, entrepreneurship and deregulation, etc, will increase technological innovation and high-quality goods and services. That gives Dell ample opportunity to grow aggressively and robustly in the Chinese market. I would like to give some concrete examples of Dell’s growth in China.

Dell will continue to expand and enhance its research and development team in China in further developing an R&D center for end-to-end solutions, which is specifically aimed to serve the Chinese market. In November 2015, Dell began collaborating with the Chinese Academy of Sciences to establish the “Artificial Intelligence and Advanced Computing Joint-Lab”. Mr. (Michael) Dell (CEO) witnessed the signing of a strategic partnership agreement between Dell and Kingsoft Cloud in September 2015. Dell will further enhance its cooperation with local partners in the fields of big data and cloud (computing), fully supporting and embracing China’s national Internet Plus strategy.

A4 The government’s 13th Five-Year Plan and other policies will bring great opportunities for Dell’s growth in the Chinese market. Dell is going to invest more than $125 billion in China over the next five years, contributing approximately $175 billion to imports and exports, sustaining more than 1 million jobs through the ecosystem, and demonstrating Dell’s long-term commitment to China. Dell Ventures, the company’s corporate VC (venture capital) arm, entered the Chinese market in November 2015, propelling the strategy of “massive entrepreneurship and innovation by all”, which is the new engine for the economic development in China, and giving support to the entrepreneurship and innovation in Chinese enterprises.

Oliver Hua, Managing Director for the Asia-Pacific region, Booking.com

A1 With the Chinese government changing the growth target from a specific rate to a range, we see a shift of priority from the sole pursuit of economic growth figures to a greater focus on the structural adjustment and upgrading of industries. This 6.5 to 7 percent GDP growth target still ranks China as one of the fastest-growing economic powers. As this transformation progresses, we’re glad to see China’s service sector rose to 50.5 percent of GDP last year, accounting for more than half for the first time. We’re also thrilled to find that a significant proportion of this growth was contributed by the booming domestic travel industry. With a 7.4 percent rise in personal incomes, Chinese people are becoming more willing and capable of traveling. Booking.com has confidence in China’s economy and will continue to invest and contribute to the development of China’s tourism industry.

A2 China is aggressively seeking to draw on the power of innovation to boost its economic transformation. This is not an easy path, with both challenges and opportunities lying ahead. With the government advocating social innovation and introducing initiatives such as the Internet Plus strategy last year, the market is witnessing an increasing penetration of Internet innovation in all industries, which will continue to be a driving force of economic growth this year.

With the contribution of such a strategy, the market revenue of China’s tourism industry has reached 4 trillion yuan with the Internet penetration rate exceeding 13 percent. Backed by big data and algorithm excellence, Booking.com constantly innovates to meet the increasingly social and mobilized Chinese consumer demand by providing personalized booking experiences with wider variety and higher quality. As an international OTA (online travel agency) platform, we are also bringing foreign tourists to China, enabling Chinese accommodation partners to reach “no off-season” business successes.

A3 In this year’s government report, paid leave and annual leave implementation with strict supervision of the travel market was highlighted to standardize and promote the tourism industry. Booking.com views these policies as a great opportunity for China’s travel industry to embrace the new normal of economic growth and develop into a strategic economic pillar for the country.

A4 Since entering the Chinese market in 2010, Booking.com has always regarded China as one of its most important foreign markets. The eased tax burden will allow companies to invest more into product and service optimization and innovation, which will benefit industry upgrading and economic transformation in the long run. For Booking.com, these government initiatives give us confidence to invest continuously in China and develop more customized and innovative products specifically for the Chinese market.

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